Rates are about right: Reserve Bank

The Reserve Bank of Australia’s (RBA) December board meeting came and went as expected with no change in the official cash rate today.

Borrowers are now likely to have some respite from interest rate rises for several months with governor Glenn Stevens saying that after the decision to lift the cash rate last month and subsequent increases by banks, lending rates in the economy were now “a little above average”.

“The board views this setting of monetary policy as appropriate for the economic outlook,” Mr Stevens said in his traditional post-meeting statement. He also reiterated that the strength of the Australian dollar would help keep inflation under control.

“Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected,” he said.

He also indicated that the bank had not finished lifting rates just yet, noting that national income is growing strongly as a result of the terms of trade hitting the highest level since the early 1950s.

Economists were not surprised by today’s outcome as last week’s economic data indicated the economy was going through something of a soft patch even before November’s rate increase plus the fact that the major banks had effectively done some of the policy work for the RBA by jacking up their home loan rates by 40 basis points on average last month.


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